Study: The Less You Earn, the More Your Taxes Are

The more you earn, the less in local taxes you pay, a new analysis shows, and several states are considering policies to lighten wealthy residents' tax burden even more.

"Virtually every state’s tax system is fundamentally unfair," the study, completed by the Institute on Taxation and Economic Policy says, according to The New York Times.

"Unfair tax systems not only exacerbate widening income inequality in the short term, but they also will leave states struggling to raise enough revenue to meet their basic needs in the long term."

The analysis shows that this year, the poorest 20 percent of Americans will spend about 10.9 percent of their income on state and local taxes. The middle fifth, meanwhile, pays 9.4 percent and the top 1 percent's tax burden is 5.4 percent of their income.

Meg Wiehe, state policy director for the nonpartisan research organization, explained that local entities rely on sales and excise taxes, such as for gas or cigarettes, which tax at the same rate for everybody.

But property taxes are harder on people with lower incomes, as their homes are usually their largest financial asset, the report shows.

The study ranked some states as being in the "Terrible 10," where the lowest 20 percent of earners pay as much as seven times as much of their income as the top 1 percent. Washington was deemed the worst, where poorer residents pay 16.8 percent of their income out, while the wealthiest pay out 2.4 percent.

Others in the "Terrible 10" were Florida, Texas, South Dakota, Illinois, Pennsylvania, Tennessee, Arizona, Kansas and Indiana, the report said.

And while there are conservatives who argue that lowering taxes for the wealthy and businesses helps grow the economy, the institute said such "trickle-down economic theories" have been discredited.

Further, some of the states with the highest tax burdens, like Washington and Texas, say taxes are lower because there is no income tax, but the report pointed out that such states rely more on sales and excise taxes, putting additional burdens on low-income families.

WalletHub, which completed its own taxpayer fairness survey last fall, found most people feel the poor should be taxed less than the rich, said chief executive Odysseas Papadimitriou.

Washington also fared worst in the WalletHub ratings for three categories, liberal, conservative and overall, while Montana ranked as the most fair when it comes to taxes.